Statistics on pension entitlements renewed

The accrued pension entitlements of
Finland’s statutory earnings-related pension scheme, with a
real discount rate assumption of three per cent, stood at EUR 631.5
billion at the end of 2015, or 301 per cent relative to gross
domestic product. The pension entitlements of the earnings-related
pension scheme of private branches were EUR 421.6 billion and that
of public branches were EUR 209.9 billion.

Accrued pension entitlements at different discount
rates at the end of 2015, EUR million

Pension entitlements refer to the amount of money that would be
enough to cover the accrued pensions at that moment discounted to
present value. The amount of pension entitlements in the
earnings-related pension scheme is critical to the discount rate
used in the calculations: with a real discount rate of two per cent
the pension entitlements were EUR 747.0 billion or 356 per cent
relative to gross domestic product and with a four per cent real
discount rate they were EUR 542.8 billion or 259 per cent relative
to gross domestic product.

Finland’s statutory earnings-related pension scheme is
partially funded. In the financial accounts, the amount of
employment pension scheme’s assets were EUR 183.1 billion at
the end of 2015. The funding ratio, i.e. the ratio of pension
assets and pension entitlements was 29 per cent.

A new supplementary pension table complements the financial
accounts

In the revision of the European System of Accounts (ESA 2010),
the statistics on pension entitlements was expanded with a
supplementary pension table outside the “core accounts”
that contains data on all pension entitlements of social insurance.
These new data are released later concerning EU countries on
Eurostat’s
pages . In Finland’s case, new statistical data are the
above-mentioned pension entitlements of the statutory
earnings-related pension scheme that are not included in the
financial accounts but that are included in the supplementary
pension table. Previously data on the pension entitlements of the
earnings-related pension scheme have been released in the Finnish
Centre for Pensions’s reports Statutory pensions in Finland
– Long-term projections.

In addition to the statutory earnings-related pension scheme,
the pension table includes data on the pension entitlements of
employment-related supplementary pension schemes that are already
included in the pension entitlements of insurance corporations and
voluntary pension funds in the financial accounts. The amount of
pension entitlements of voluntary supplementary pension schemes
describes the technical provisions. At the end of 2015 it stood at
EUR 10.4 billion or five per cent relative to gross domestic
product.

The supplementary pension table describes the pensions
classified as social insurance. The Social Insurance
Institution’s national and guarantee pensions are classified
as social assistance and are thus not included in the supplementary
pension table. The key difference between social insurance and
social assistance is that in case of social assistance, pensions
are paid to the pension recipients regardless of whether they
participate in the system by paying pension contributions or
not.

When calculating the accrued pension entitlements of the
statutory earnings-related pension scheme the basis is a fictive
situation where the insured are paid all the accrued pensions at
that moment but no new pension is accrued. The amount of pension
entitlements does not describe the sustainability of the pension
system. The concept depicts future pension expenditure, i.e.
pensions paid to pension recipients whose amount is affected, in
addition to earned income and the rate of accrual, by, for example,
life expectancies and other assumptions in the calculation model.
Incomes of the earnings-related pension scheme, i.e. pension
contributions and the profits from the earnings-related pension
assets are not included in the calculation.

In calculations stretching long into the future, background
assumptions, like the discount rate and the population and economic
development are of high significance for the results. The
sensitivity of the results to the discount rate assumption is
emphasised by releasing the results with the three real rates
mentioned above.

Private and public branches

Finland’s statutory earnings-related pension scheme in
practice covers all work in private and public branches. The
earnings-related pension scheme is formed of several pension acts
that together cover the various sectors of the economy. The pension
entitlements based on the following pension acts are included in
private branches: Employees Pensions Act (TyEL), Seafarer's
Pensions Act (MEL), Self-employed Persons' Pensions Act (YEL),
Farmers' Pensions Act (MYEL), supplementary pension provision under
the Employees' Pensions Act (TEL-L, abolished at the end of 2016)
and the pensions of the Evangelical-Lutheran Church.

The pension entitlements based on the following pension acts and
rules are included in public branches: Public Sector Pensions Act
(JuEL, excluding the pensions of the church), and the pension
regulations for the employees and officials of the Bank of Finland
and the regional government of Åland. At the beginning of 2017, the
following acts were combined with the act on public branches’
pensions: Central Government's Pensions Act (VaEL), Local
Government's Pensions Act (KuEL), Evangelical Lutheran Church's
Pensions Act (KiEL) and the pension rules for the Social Insurance
Institution's employees. Pension entitlements based on VEKL (act on
the compensation of pensions from central government funds for
periods of caring for a child aged under three and during studies)
are included in both private and public branches.

In addition to the earnings-related pension scheme, the
supplementary pension table covers all the supplementary pensions
managed by voluntary pension funds and foundations, as well as
group pension insurance offered by insurance corporations because
they are considered as social insurance. The individual pension
insurance taken out by enterprises or private persons are left
outside of the concept of social insurance.

Accrual calculations of the pension entitlements in the
earnings-related pension scheme

The amount of pension entitlements is calculated with a
long-term projection model in the Finnish Centre for Pensions.
Information on the calculation model and the calculations on
accrued pension entitlements previously released by the Finnish
Centre for Pensions can be found in the Finnish Centre for
Pensions’ reports Statutory pensions in Finland -
long-term projections , especially in appendices 3 and 8. The
latest report is
Statutory pensions in Finland — Long-term projections .
The difference compared to the calculation of the Finnish Centre
for Pensions’ report is that the background assumptions used
in this publication are those agreed on in the European
Union’s AWG working group ( Ageing Working Group )
and recommended by Eurostat in order to improve the international
comparability of the calculations.

The long-term planning model of the Finnish Centre for Pensions
describes how the pension scheme works and its current regulations
in detail. Future development of pensions is in the model
calculated pension act specifically using age and sex-specific data
on insured persons and the population of Finland.

When calculating pension entitlements, all pension entitlements
accrued by the time of examination and pensions under payment are
considered. Future index increases and the effect of the life
expectancy coefficient have also been considered in the amount of
pension entitlements. Pension parts that are accrued based on
future work or social security benefit periods are not included in
accrued pension entitlements. The future part of disability
pensions that will start later are not included in accrued pension
entitlements.